Monday, January 28, 2013

December capital goods orders exceeded expectations (+0.2% vs. -0.2%), and November orders were revised up a bit (+3.0% vs. +2.7%). This proxy for business investment has now reversed over half of the decline that occurred from December through July, and thus the threat of an investment-led slump in the economy has receded significantly. Businesses are not going on strike, but they remain cautious. As of the third quarter last year, after-tax corporate profits were up 30% from their pre-recession peak, yet capital goods orders are still 9% below their pre-recession peak. Business' lack of confidence in the future—as manifested in a reluctance to invest in line with gains in profits—is one of the main factors restraining the growth of the economy.

Shipments of capital goods have risen for the past three months, and so this component of GDP will be positive in the fourth quarter, after subtracting in the third quarter. It's not a whole lot to be excited about, but it is a positive change on the margin, and when a number of those add up, the economic outlook continues to improve, albeit gradually.

Durable goods orders, meanwhile, reached a new post-recession high in December, and are only 5% shy of their pre-recession peak.

4 comments:

Doug Short has a little different take on the numbers. Adjusted for inflation and population growth we are 42% off the peak: http://advisorperspectives.com/dshort/updates/Durable-Goods-Real-Per-Capita.php

What is needed is animal spirits. Printing money to finance government bonds to give money to the central government to spend doesn't do a good job at that. The only really good way to increase velocity is to increase the money supply through loans to businesses and households. But you can't do that directly. You have to create conditions for that. The money going into the economy from government spending is not volunatry. Borrowing is voluntary and represents confidence and a better future.

How excited is our economy going to get when the majority only talks about equalitarianism, control, and death by global warming.

What is bad about Doug Short’s chart is that his adjusted capex is down for the last year and down to a point two and a half years ago.

Inflation will solve this? I think they will have to push inflation up high to get people to involuntarily start borrowing and spending. With all the inflation protection in wages, contracts, social security, anything the government is involved in, I don’t see anything except more whining, complaining, protesting, if not rioting, about how unevenly the benefits of inflation protection are distributed. Minorities, women, disabled all crying the blues. Union workers going on strike all over the place. Doctors forming unions. Transportation workers shutting down their systems. Hospitals shutting down from nurses striking. Supply chains a mess. Purchasing agents having to give kick backs to suppliers. School teachers striking. In the meantime, the nonsupervisory wage earner gets clobbered, gets divorced, and has to go on welfare. Crime, alcohol and drug abuse will go up under inflation. ‘It’s Not Fair’ will become the title of the new national anthem.

What the American economy needs is not more financial capital (e.g., money), but more intellectual capital. World-class skills are selling for premium wages on global markets today. Conversely, less than world-class skills are selling for diminishing wages in today's global markets. Said another way, wages are regressing to global norms. The global norm for manufacturing work is about $20/day, which is where American manufacturing wages are headed (and which is ironically, good for the US economy). Conversely, those with world-class skills (e.g., movie stars, professional athletes, physicians, top research scientists, glamour models, etc.) are enjoying premium wages. The best advice to people that one can provide is to do whatever is required to escape the 99% crowd (anyone earning less than about $300,000-$500,000 annually and/or with a net worth of less than about $5-10 million) and to join the 1% club of "millionaires and billionaires" who are experiencing improving standards of living. Set your personal skills bar very high, and do the work required to qualify for world-class skills training. There's no looking back. Poor people (anyone earning less than about $300,000-$500,000 annually and/or with a net worth of less than about $5-10 million) are in for hard times during the 21st century. Career complacency is the number one problem confronting most Americans today. Now is the time to acquire world-class skills that earn premium wages that convert into dividend and rent-earning equities over a lifetime. Make the commitment starting right now, before it's too late!